(Corrects wealth management pretax profit margin in 6th paragraph to 13 pct from 14)
* Adjusted profit 28 cents/share vs Street view 24 cents
* Bond trading revenue rises
* Shares up nearly 2 pct in premarket trading
By Lauren Tara LaCapra
Oct 18 (Reuters) - Morgan Stanley on Thursday reported better-than-expected adjusted earnings for the third quarter as it boosted revenue from trading bonds, long a sore spot for the investment bank.
Income from continuing operations totaled $561 million, or 28 cents per share, compared with $64 million, or 2 cents per share, a year earlier.
On that basis, analysts had been expecting 24 cents per share, according to Thomson Reuters I/B/E/S. Morgan Stanley shares rose nearly 2 percent in premarket trading after the results were reported.
The main driver of the higher adjusted earnings were improvements in its institutional securities business, which includes trading and investment banking.
Pretax income in that business, excluding debt valuation adjustments, was $345 million, compared with $37 million a year ago.
Morgan Stanley's global wealth management business also showed improvement, excluding one-time integration costs and buying an additional stake in a retail brokerage joint venture with Citigroup Inc. The adjusted pretax profit margin for the business rose to 13 percent from 11 percent. Management has targeted a pretax margin in the "mid-teens" for wealth management by next year.
Overall, Morgan Stanley lost money in the third quarter due to a $2.3 billion accounting charge to reflect an increase in the value of the bank's debt.
Including that charge, Morgan Stanley lost $1 billion, or 55 cents per share, in the quarter.
U.S. accounting rulemakers are changing the rule that requires earnings to reflect changes in a bank's debt values. Analysts and investors tend to ignore income and losses from debt value adjustments because the adjustments swing wildly but have little impact on a bank's daily business. (Reporting By Lauren Tara LaCapra; Editing by Gerald E. McCormick and John Wallace)